Business context and reporting period
CMS Energy Corporation’s combined Form 10-K with wholly owned utility Consumers Energy covers the fiscal year ended December 31, 2021. CMS operates primarily in Michigan through regulated electric and gas utilities and a smaller energy-generation and marketing business. Consumers serves approximately 6.8 million Michigan residents. Figures below are U.S. dollars; “CMS” refers to consolidated CMS Energy unless otherwise noted.
Financial performance and condition
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Operating revenue | $7.329 billion | $6.418 billion |
| Operating income | $1.146 billion | $1.230 billion |
| Income from continuing operations | $728 million | $694 million |
| Net income available to common stockholders | $1.348 billion | $755 million |
| Diluted EPS | $4.66 | $2.64 |
| Cash from operating activities | $1.819 billion | $1.276 billion |
| Capital expenditures | $2.076 billion | $2.311 billion |
Operating margin was approximately 15.6%, down from 19.2%; continuing-operations income margin was approximately 9.9%, versus 10.8%. FY 2021 common-stockholder earnings include $602 million of after-tax discontinued-operations income, including the EnerBank sale gain. Excluding discontinued operations, diluted EPS was $2.58, compared with $2.44 in 2020.
At year-end, CMS reported $476 million of cash and cash equivalents, including restricted cash, and $12.568 billion of total debt principal. Revolving credit availability was $526 million at CMS parent and approximately $1.08 billion at Consumers; Consumers had no commercial paper outstanding. CMS’s 2021 common dividend declared was $1.74 per share. Consumers reported $7.021 billion of revenue and $866 million of net income available to its common stockholder, versus $6.189 billion and $814 million, respectively, in 2020.
For Q4 2021, CMS reported $637 million of net income available to common stockholders and diluted EPS of $2.20; discontinued operations contributed $520 million after tax. Continuing-operations income was $114 million, or $0.40 diluted EPS. Q4 2020 common earnings were $158 million, or $0.55 diluted EPS.
Material changes versus the prior comparable period
- Revenue rose about 14%, while operating income fell about 7%. Higher utility rates and electric sales supported results, but higher service-restoration and other operating costs, depreciation, and property taxes weighed on operating income.
- CMS sold EnerBank to Regions Bank on October 1, 2021, receiving proceeds of more than $1 billion and recording a $657 million pre-tax gain. The transaction materially boosted reported net income; EnerBank is classified as discontinued operations.
- Utility segment net income available to common stockholders increased: electric rose to $565 million from $554 million, and gas to $302 million from $261 million. Enterprises earnings declined to $23 million from $36 million.
- Operating cash flow increased, including because 2020 had $700 million of pension contributions; CMS made no pension contribution in 2021. Investing cash outflow was $1.233 billion, partly reflecting EnerBank sale proceeds.
- CMS issued $224 million of Series C preferred stock, paying a 4.2% cumulative dividend, and Consumers issued $300 million of first-mortgage bonds.
Outlook, commentary, risks and unusual items
- Management expects weather-normalized electric and gas deliveries to remain broadly stable over the next five years. Consumers expects approximately $25 billion of investment over the next decade; its 2022–2026 capital plan totals $14.3 billion and is projected to support annual rate-base growth of 6%–8%.
- Consumers’ 2021 integrated resource plan, pending MPSC approval, proposes ending coal generation by 2025, adding nearly 8,000 MW of solar capacity by 2040, and targeting net-zero electric-business carbon emissions by 2040. The plan includes coal-unit retirements and proposed acquisitions of natural-gas generation; approvals, cost recovery, timing, and project execution remain material uncertainties.
- The MPSC approved an annual electric rate increase of $27 million effective January 2022, with a 9.9% authorized ROE, while disallowing recovery of certain capital costs. Consumers recorded a $41 million impairment charge related to disallowed costs, including an assessment for certain gas expenditures. Consumers also recorded a $4 million charge for fleet assets held for sale. A gas rate case seeking $278 million annually, based on a requested 10.5% ROE, was pending at year-end.
- Key risks include regulatory decisions and cost recovery, extensive capital requirements, environmental compliance and remediation, fuel and purchased-power prices, severe weather, supply-chain and labor constraints, cyber incidents, customer usage changes, and access to capital. Consumers’ recorded regulatory assets were $2.305 billion and regulatory liabilities $3.948 billion; their recovery or settlement depends in part on regulatory outcomes.
- Recorded environmental liabilities include $45 million for CMS subsidiaries’ Bay Harbor obligations and $57 million for Consumers’ former manufactured-gas-plant sites. CMS also disclosed an Equatorial Guinea tax claim of $152 million plus potential penalties and interest, which management considers remote; a $36 million disputed post-closing EnerBank purchase-price adjustment is also unresolved.
- Management stated that liquidity is expected to be sufficient for planned requirements. Both registrants received unqualified audit opinions, and the auditors and management reported effective internal control over financial reporting.
Important facts for investors to verify
- How much of 2021 earnings and EPS is recurring after excluding EnerBank’s sale gain and discontinued operations.
- Final MPSC treatment of the electric capital-cost disallowances, the pending gas rate case, and recovery of future capital and environmental costs.
- Approval, economics, funding, and execution of the 2021 resource plan and major generation acquisitions and retirements.
- Debt maturities, interest costs, dividend capacity, and the extent to which CMS parent liquidity depends on distributions from Consumers.
- Potential changes in environmental remediation estimates, the EnerBank purchase-price dispute, and other material legal or regulatory proceedings.